By David L. Rezac and Charles D. Gullickson
Plenty of publicity surrounded the $700 billion Emergency Economic Stabilization Act of 2008, the so-called "bailout" plan enacted by Congress due to the recent financial crisis. Little of the publicity, though, looked at the details of various aspects of the plan. One of those is the Capital Purchase Program, announced by the U.S. Treasury Department on October 14 and created pursuant to the Act's mandated Troubled Asset Relief Program. While most observers are aware the program will allow the Treasury Department to purchase senior preferred shares of qualified financial institutions desiring to participate in the program, the applicable terms vary for publicly held and privately held financial institutions,
As of today, term sheets, application deadlines and other details of participation have been issued only for publicly-held applicants. No terms of participation have been released with regard to non-public financial institutions, and no application deadline has been set for such applicants. According to the Treasury Department, it "will post an application form and term sheet for privately held eligible institutions at a later date and establish a reasonable deadline for private institutions to apply.”
For non-public financial institutions interested in participating in the Capital Purchase Program, it may be helpful to review the terms applicable to public institutions. The Treasury Department has a web page with various information about the public institution program, including application guidelines, agreements, term sheets and even responses to frequently asked questions.
DEHS understands that the American Bankers Association and others are working closely with Treasury to address particular concerns raised by the potential shelf-registration requirements, the lack of limitations on the transferability of the preferred shares, taxation matters, and other issues of specific concern to privately-held institutions. Accordingly, we anticipate term sheets and other requirements for privately-held financial institutions will be better tailored to the corporate structures and limitations of non-public institutions.
UPDATE: On November 17, 2008, the Treasury released the term sheet, application deadline and other details of participation for non-public institutions, excluding S corporations and mutual organizations. The application deadline for non-public institutions is December 8, 2008. The term sheet and details are available at the Treasury website.
For additional information, please contact David Rezac or Charles Gullickson.